Finance and Economic

CVS Caremark Corp (CVS.N: Quote, Profile, Research, Stock Buzz) will fill gaps in its U.S. drugstore footprint by acquiring Longs Drug Stores Corp (LDG.N: Quote, Profile, Research, Stock Buzz), but the benefits might take a while to realize.

The $2.54 billion pricetag also renewed concerns among some analysts that capital was being siphoned off from the Caremark pharmacy benefits management (PBM) business to feed a drugstore business during a time when retailers are being hurt by a weak U.S. economy.

“We believe the 32 percent premium … is excessive,” BMO Capital Markets analyst Dave Shove said.

Though Shove said the deal gives CVS a “formidable presence” in a number of valuable regions, such as northern California, it is not positive for shareholders, given how much it will cut into 2009 earnings payday loan.

Despite expected dilution, CVS shares were down less than 1 percent on Wednesday.

CVS announced the $71.50-a-share deal after the market closed on Tuesday.

It estimated the acquisition will cut earnings per share by 1 cent to 2 cents in 2008 and 5 cents to 6 cents in 2009, before adding to earnings by 4 cents to 5 cents in 2010.

The pricetag was flagged as high by other analysts on Wednesday, and some questioned whether the deal signaled that CVS was using cash from its PBM business to grow its retail business. 

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